The effects of COVID-19 will transform the international world order and affect Canada’s role in it.
First,
the meteoric rise of China, with its aspirations of world leadership
and greater respect, will come to a crashing halt. Despite the
importance of China’s market to the world economy, there will be an
increase in transactions and transport costs as the hyper-globalized
pre-COVID world takes a pause given concerns about virus transmission.
There
will still be global trade and travel but there will be new rules and
precautions operating as a form of non-tariff barrier with resulting
losses for producers and ultimately consumers. For Canada, trade with
China will continue given the importance of our resource inputs to their
economy. But they will eventually need us more than we need them and
this should shape our trade policy accordingly.
Of course, there’s
also the long-term fallout from the Chinese government’s delay in
alerting the world to the seriousness of COVID-19 while simultaneously
scouring the planet for PPEs. The Chinese government’s desire to be
treated like a superpower runs counter to the leadership and stewardship
we’ve seen over the last few months. With great power comes great
responsibility, and perhaps the best example of it during the 20th
century was the American assistance for European recovery. While
self-interested, the Marshall Plan nevertheless helped former foes and
allies alike rebuild their economies after the Second World War.
Notwithstanding its later efforts, the Chinese government’s behaviour
during the early phases of the pandemic has eroded trust. For Canada,
the new rule in its international dealings with China should be trust
but verify.
Second, the abdication of global leadership and
retreat by the United States is nearly complete, reinforced by its
chaotic handling of its own public health situation. While the U.S. has
been far from perfect, during the 20th century it was a leader for free
markets, international trade and humanitarian efforts to help bring
about a better world. The last four years have seen a populist-fuelled
retreat from this vision of America in the world and we will all be
poorer for it. The COVID debacle in the U.S., due to a lack of
coordination and response, sends a distressing message to its trade
partners and allies. For Canada, there can be no retreat from dealing
with the U.S. given its importance to our economy. But we can no longer
assume that all American interests are automatically our own.
Third,
given what has transpired with both China and the U.S., the Europeans
and the United Kingdom will ultimately assert new leadership, engagement
and involvement in world affairs though they will not always sing with
one voice. The retreat of the U.S., the Chinese government’s lack of
transparency and not-so-subtle bullying—combined with the ever-present
Russian behemoth on their doorstep—means they will need to do more for
themselves in terms of security and trade, and will need to reach out
and strengthen their trade relationships around the world. Here, Canada
has taken the first steps with the Comprehensive Economic and Trade
Agreement but it must actively pursue opportunity and build further
relationships. Trade agreements are not enough, you must work to
implement them.
The ultimate result from all this uncertainty will
likely be an even more competitive and multilateral world order with
Russia, Saudi Arabia, India and Brazil constituting additional elements
of change and disruption. Yet this world will also be a source of
opportunity for a resource rich and diverse outward looking country such
as Canada.
We can benefit, but we must be nimble and adaptable in
this changing world. Canada must actively engage with all players, but
on its own terms, and must seek like-minded allies who are also small
trade-dependent economies with stable, democratic and market-oriented
institutions. Canada, Australia, New Zealand, Taiwan and the
Scandinavian countries can serve as champions of small open economies in
this emerging and more competitive world order. A league of small open
economies may seem naïve, but one should not underestimate the powerful
effects of mice that roar.
This first appeared on the Fraser Institute Blog,
May 12 2020.
